What Happens If You Don't File Your Taxes At All

Fri Mar 24, 2017 17:10:05PM
Uncle Sam needs YOU! .. to file your taxes.By: James Montgomery Flagg
Ever wonder what would happen if you just skipped out on filing your taxes? You get your paperwork back from your employer, either in the mail or through e-mail, and just think too yourself, ugh, not again. I don't want to go through this hassle again. So you just let the task fade back to a darker corner of your mind, and forget about it. What would really happen anyways? Would an IRS agent come and hunt you down? Throw you in jail? Really now, what would be the consequence??

Well, a bounty hunter style IRS agent isn't likely to jump out of some random bush and haul you off to the big house, especially if you just fail to file for a year, or even a few years in a row. Nothing that dramatic. But, and there's always a but, there will be consequences. Everyone that makes some kind of income, through a variety of ways and means, is required to file the necessary forms to the US government for federal taxes. Even if you know that you will be getting a return. It's still a requirement. Here's what will happen if you choose not to.

Let's start with the most benign:

If you know that you will be getting a return, it would be silly not to file on time. If you miss the April 15th yearly filing deadline without filing for a standard 6 month extension, interest gets added to your bill for failing to file on time, making your return automatically slightly smaller. It won't be a lot of interest, at first. But still, you are meant to get money back because you overpaid on your taxes throughout the year, in this scenario. It would be money that you would lose for essentially being lazy, if you just chose not to file. If you really do just forget, know that penalties will be assessed and always file on time to maximize your return.

A little more serious:

If you go years without filing, whether you will end up owing or not, the IRS will eventually calculate and file your federal taxes FOR you. And that's not a good thing because they will file everything in the worst case scenario version of what you could have filed. Meaning no deductions that could have saved you money, or brought on an additional return. They will likely file you as a single individual with only one exemption.

Even more serious:

Where the consequences get more serious, and where you likely have heard of some folks even being carted off to jail (Wesley Snipes) is when you know that you will owe the federal government taxes, and don't file and simply don't pay anyways. Tax debt turns into back tax debt turns into a mountain of trouble that could have been avoided if you would have just complied on time. Of course, everyone makes mistakes. And the IRS can be understanding of this. I'll include a section at the bottom for those of you that might be in a situation of owing several unfiled years of back taxes, and what you can realistically do about it. Trust me from experience, the IRS is willing to help, if you are willing to contact them and jump through all the necessary hoops.

Anyways, on to the consequences. If you don't file and pay your taxes and/or back taxes: on top of the IRS eventually filing for you with the worst case scenario version, they will also apply quarterly interest on top of what you owe. And that interest can really pile up over the months and years. In some cases, penalties, fees and interest of all kinds can see your tax debt jump to levels that are likely double of what you would have otherwise had to pay. We are talking thousands and thousands of dollars. Just Google 'tax penalties and interest on back tax debt' and then try your damnest not to let this happen to you. And if it is happening to you right now, get on the ball of stopping the piling on process.

Once you find yourself attempting to eventually file your now back taxes, you'll find that it will end up costing you likely hundreds (or even more likely several thousand) of dollars on top of the penalty debt accrued to hire a tax professional. Reason being, filing back taxes gets exponentially more complicated. As the tax code and tax forms change all the time, probably you have to track down different forms. And then you will need someone with experience to help you file, and help you also minimize what you now owe. Hiring a tax pro for back taxes usually runs at higher rates, as they are doing a specialty job for you. This will also take more time on your behalf. Again a waste, as time is arguably money.

Most serious:

When it gets real bad is when you owe $10,000 + in tax debt and have not paid. At this point, the IRS can:

Garnish Your Wages
Put a Lien on Your Bank Account
Put a Lien on Your House or other Assests

They can also put unpaid tax debt on your credit, hurting your finances even further by damaging your credit score. So one way or another, if you are ever able to pay for your taxes but simply chose not to file and pay, eventually the IRS will seize your bank account and most valuable possessions and take their cut accordingly, on their terms and not yours. Don't let that happen.

What you can do if you have back taxes to file and pay for:

Contact the IRS immediately, and negotiate a plan of action. There are local CPAs all across the country that also specialize in helping those files their back taxes. And sometimes if you are lucky, they might be willing to even do it at a discounted rate. The IRS does want you to be compliant, and has set up help to allow for this. If you know that you will owe for several years of back taxes, payment arrangements can be made by submitting a form known as 9465. This is for an Installment Agreement Request.

And last but not least, if you owe far more than you can ever realistically pay back, there is an IRS program called 'Offer in Compromise'. If you qualify, you can get your collective tax debt settled with the IRS for substantially less than what you owe.

Even still, in conclusion, simply choosing to not pay or file your taxes can lead to nothing good. From penalties, interests, fines, to worst case scenario filing, to bank levies and house liens, you can't hide from taking care of your taxes. It's just not worth it. And it will never be worth it. Ben Frankin had it right. For better or worse, heed at least part of these immortal words: "Nothing can be said to be certain, except death and taxes."
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